Tag Archives: gold

The Price of Gold in the Year 2160

This piece of fun weekend reading is contributed by StatsGuy, an occasional commenter and guest contributor on this blog.

It’s become quite popular to talk about the price of gold . . . in blogs, the press, at dinner parties.  The latest topic of debate is not about the price of gold as a commodity, but about gold as the one and only king money.  The basic argument is that 5,000 years of tradition will overwhelm the tyranny of modern government and the fiat printing press.  The barbaric relic will defeat socialism, fascism, Obama-ism,  and restore liberty to the world, after a terrible economic collapse in which gold-owning visionaries become fabulously wealthy.

Perhaps they are correct—or perhaps not.  I don’t know what will happen in 10 years.  However, unless civilization utterly collapses (which is what gold hoarders seem to want), the gold bubble will collapse.  And I don’t mean the 10 year “bubble” . . . I mean the 5,000 year bubble.

This claim might sound crazy, but it’s quite easy to defend, for the simple reason that there is too darn much gold.  Gold enthusiasts will note that you can’t just print gold like fiat paper.  They will note that high quality mines are failing, and argue that we’ve passed “peak gold”.

The argument for the collapse has little to do with terrestrial mine quality (although massive amounts of money and new technology are flowing into exploration, long term mine development and extending the life of existing mines).  The argument merely requires that gold price ultimately responds to supply.

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The Elusive Quest For Gold

By Simon Johnson.  As prepared for the NYT’s Room for Debate – for the context and the whole discussion, see this link

In a world with so many instabilities, there is an understandable search for something that offers a stable value – preferably something that cannot be affected by the whim of government or the latest scheme of a central bank.  Unfortunately, this search proves just as illusory as the pursuits of alchemists in pre-modern times; there is no magic to gold.

For international economic transactions, proposing any kind of return to the gold standard is equivalent to wanting more fixed exchange rates, i.e., moving away from market-determined rates and returning to the system, at least in part, to how it operated before 1971.

But it is hard to imagine how this would help with regard to the major currencies, which are again the subject of controversy today. The main issues in the US are high unemployment, an unstable financial system, and longer-term issues around the budget.  How exactly would gold help on any dimension?  Advocates of a modified gold standard argue that this would serve as a form of anchor to the system – but in the 1930s it proved to be an anchor tied around the neck of some countries, including the United States.  Nobody needs the kind of “stability” associated with the Great Depression. Continue reading